May 24, 2018 / 12:59 AM / 2 months ago

Cerberus seeks sale of U.S. defense contractor DynCorp-sources

(Reuters) - DynCorp International Inc, a U.S. defense contractor owned by private equity firm Cerberus Capital Management LP, is exploring a sale that could fetch more than $1.3 billion, three people familiar with the matter said.

The move to sell DynCorp comes as Cerberus co-founder and CEO Stephen Feinberg was appointed by U.S. President Donald Trump as chairman of his administration’s intelligence advisory board to review the U.S. government’s intelligence operations.

Cerberus has hired two investment banks that are in the early stages of soliciting offers from potential buyers for DynCorp, the sources added. DynCorp could be valued at around eight times its 2018 earnings after taxes of $168 million, the sources said.

The sources asked not to be identified because the negotiations are confidential. A spokesperson for Cerberus declined to comment.

Last year, Cerberus said if its chief were to join the U.S. administration clearing hurdles associated with conflicts of interest would require Feinberg to provide “voluminous information” and disclosures to the Office of Government Ethics.

In 2010, Cerberus took DynCorp private for more than $1 billion. The company has had contracts to train Iraqi police and support U.S. troops in Afghanistan.

The timing of the sale may be opportune for Cerberus, after the Pentagon’s budget was increased to nearly $700 billion last year. Rising U.S. government spending for the Pentagon has fueled a spree of dealmaking among defense services companies.

Moody’s Investors Service Inc recently upgraded DynCorp’s rating on its debt. Moody’s analyst Bruce Herskovics said, “The upgrade reflects backlog growth coupled with improved profitability under existing contracts that should continue over 2018-2019.”

In April, weapons maker General Dynamics Corp (GD.N) bought CSRA Inc CSRA.N for $9.7 billion to expand its government services business.

This month, defense electronics company L3 Technologies Inc (LLL.N) sold Vertex, its aerospace and defense logistics support services unit, for $540 million.

Remington Outdoor Co Inc, which was once a Cerberus investment, and makes the Bushmaster rifle emerged from Chapter 11 bankruptcy last week.

Trade publication Debtwire reported news of DynCorp exploring a sale earlier on Wednesday.

Reporting by Mike Stone in Washington; editing by Greg Roumeliotis and Cynthia Osterman

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